Gift Tax In India

The Indian Culture has thousands of years of history as well as various traditions attached to it. It is also a birth place of many religions like Hinduism, Sikhism, Buddhism etc. Besides, India is a country with diversified culture where each occasion is a reason to celebrate and show love and affection to close family members and friends. Gifts are exchanged on numerous occasions like Diwali, Raksha Bandhan, Christmas, New Year etc. In addition to this, some people also consider Gifting as a status symbol. But little did you know that these gifts are taxable after a certain limit and one needs to pay income tax on gifts received by them. It was introduced with an objective to impose tax on receiving and giving gifts under certain specific circumstances. It is important to know taxation involved with regards to gifts in India in order to avoid any further unplanned tax outflow.

Tax was levied on gifts in the hands of the person who receives it by enacting the Gift Act, 1958. However, it was later abolished in the year 1988. And six years later it was re-introduced under section 56(2) (V) of the Income-tax Act, 1961, for taxing gifts in the hands of the recipient. So, as per the law amended in the year 2017, ‘‘gifts received by any person are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates”.

While the Income Tax Act permits you to receive genuine gifts, there are set of rules regarding “gift tax in India”. A detailed understanding of the rules on this will help you in answering the queries from the tax department, in case your IT return is taken up for scrutiny.

Any exceptions?

Gifts up to Rs 50,000 per annum are exempt from tax in India. In addition, gifts from specific relatives like parents, spouse and siblings are also exempt from tax. Gifts in other cases are taxable. Tax on gifts in India falls under the purview of the Income Tax Act as there is no specific gift tax after the Gift Tax Act, 1958 was repealed in 1998.

Are gifts in cash and kind, both taxable?

Yes, all kinds of gifts including cash, gold, real estate, paintings or any other valuable item are taxable. However if the cash amount or value of the gift in kind is less than Rs 50,000 the same would not be taxable.

New Change in the budget 2019

With the passing of the Finance Bill 2019 in Parliament, some changes have been made in the rule regarding the taxation of gifts given by resident individuals to non-resident Indians (NRIs). 

According to changes made at the time of passing Budget 2019, only money paid by a resident individual to a 'person outside India without any consideration will be considered as taxable in the hands of the receiver'. 

Gift Tax Exemptions

As rules laid by the Government there are certain gifts that do not attract tax as and when received by any person in the form of Gift.

Note: Donee Meaning – A person who receives a gift is known as donee.

CATEGORY OF DONE (RECIPIENT OF GIFT)	CATEGORY OF DONOR	OCCASION COVERED
Individual A gift from relative is not taxable for a donee, but income from such gifts may be taxable in some cases For Instance: deemed owner concept in house property or clubbing provisions etc.	Relative Family members like your spouse, brother, sister of self and spouse, parents or parents in law or descendant of self or spouse are mentioned here	NA
Individual	Any person	Marriage of an Individual
Any person	Any person	Under a will or by way of inheritance
Any person	Individual	In contemplation of death of donor or payer
Any person	Local authority – Panchayat, Municipality, Municipal Committee and District Board, Cantonment Board	NA
Any person	Any fund, foundation or university and other educational institution. Or someone from medical institution or any trust or institution referred in Section 10(23C)	NA
Any person	Any religious or charitable trust under section 12A or section 12AA	NA
Any trust, university, fund, educational institution which is established for charitable/religious/educational /philanthropic purpose and approved by prescribed authority [Refer Section 10(23C) (iv) (v) (vi) and (via)]	Any person	NA
Members of HUF	HUF	Any distribution of capital assets on total or partial partition of a HUF
Trust created or established solely for the benefit of relative of the Individual	Individual	NA

Disclaimer:

There is excessive tax planning in India using gifts which apparently fall under the scrutiny of the tax department, especially if it’s in huge quantity. Therefore, it is important to maintain documents to establish the genuineness of gift received.

Procedure to obtain TAN (Tax Deduction and Collection Account Number )

TAN stands for Tax Deduction and Collection Account Number. It is a ten digit alphanumeric number  required to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961 TAN number or TAN registration is very important for businesses deducting tax at source and is required to be quoted in TDS or TCS return.

Who is apply for TAN?

All those persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.TAN is a mandatory requirement for those peoples who are responsible for deducting income tax at source (Section 203A of income tax act). You need to quote this number in all correspondence to income tax department related to TDS. You also have to quote TAN in TDS certificates issued to the payee.

Structure or Format of TAN

TAN structure is as follows:

Structure of TAN First 4 digits of TAN are alphabets, the next 5 digits of TAN are numeric and last digit is an alphabet. 

First 3 alphabets of TAN represent the jurisdiction code, 4th alphabet is the initial of the name of the TAN holder who can be a company, firm, individual, etc. For example, TAN allotted to Mr. Mahesh of Delhi may appear as under:

 DEL     M     12345     L

1.If the TAN does not follow the above structure, then the TAN will be shown invalid.

2.The first three characters represent the city or state where the TAN was issued.

3.The fourth character of the TAN is the initial letter of the tax deductor.

Relevance of TAN

 As per section 203A of the Income-tax Act, 1961, every person who deducts or collects tax at source has to apply for the allotment of TAN. Section 203A also makes it mandatory to quote TAN in following documents:

 (a) TDS statements i.e. return 

(b) TCS statements i.e. return

(c) Statement of financial transactions or reportable accounts 

(d) Challans for payment of TDS/TCS 

(e) TDS/TCS certificates 

(f) Other documents as may be prescribed 

The provisions relating to obtaining of TAN will not apply to a person deducting tax under section 194-IA (i.e. from sale consideration of land/building) and to such person, as may be notified by the Central Government in this behalf. 

Procedure to obtain TAN 

There are two modes for applying for TAN:

 (1) Online mode and 

(ii) Offline mode. 

They are as follows: 

OFFLINE—An application for allotment of TAN is to be filed in Form 49B in duplicate and submitted to any TIN-FC. Addresses of TIN-FCs are available at NSDL-TIN website (https://www.tin-nsdl.com). 

In case of an applicant, being a company which has not been registered under the Companies Act, 2013, the application for allotment of Tax Deduction Account Number may be made in Form No. INC-32 (SPICe) specified under sub-section (1) of section 7 of the said Act for incorporation of the company. 

ONLINE—Online application for TAN can be made from the website of NSDL-TIN website. 

Application Procedure for TAN

1) Any of above applicant will fill Form 49B online and submit the form.

The deductor / collector must fill up Area Code, AO Type, Range Code and AO Number.If you don’t know the these details then click on the Don’t know AO details and Search on City (by selecting the appropriate alphabet)

Designation of the person responsible for making payment / collection tax’ field is mandatory to fill up, wherever applicable.

The address of applicant should be an Indian Address only.

2) Make the payment at end of the application through cheque/DD/Credit Card/Net Banking and submit.

Note: Facility of making payment by credit card / debit card / net banking is not available for below mentioned categories:-

Central Government / State Government and

Statutory / Autonomous Bodies

3) After making payment and clicking on submit button, Applicant will see a confirmation screen with all the data filled by him.

4) Applicant can confirm the data and submit or edit if any changes required in application.

5) After submitting the final confirmation applicant will see the acknowledge screen which consists of;

• A unique 14-digit acknowledgment number
• Status of applicant
• Name of applicant
• Contact details (address, e-mail and telephone number)
• Payment details
• Space for signature

6) Applicant shall save and print this acknowledgment.

7) Send duly signed (should be in given box only) with seal or stamp(if required) acknowledgment to NSDL at;

NSDL e-Governance Infrastructure Limited,
5th floor, Mantri Sterling,
Plot No. 341, Survey No. 997/8,
Model Colony,
Near Deep Bungalow Chowk,
Pune – 411016

Points to be noted while sending the acknowledgment;

# Top of envelope above address kindly write “Application for TAN- numeric Acknowledgment No.”
# Acknowledgment should be reaching NSDL within 15 days from date of application.

5. Fee for applying TAN and other payment related details are;

a. The fee for processing TAN application is Rs. 65 

b. Payment can be made by

• demand draft or
• cheque or
• credit card / debit card or
• net banking

c. Demand draft / cheque shall be in favour of ‘NSDL – TIN‘.

d. Name of the applicant and the acknowledgment number should be mentioned on the reverse of the demand draft / cheque.

e. Demand draft shall be payable at Mumbai.

f. Applicants making payment by cheque shall deposit a local cheque (drawn on any bank) with any HDFC Bank branch across the country (except Dahej). The applicant shall mention TANNSDL on the deposit slip. List of HDFC Bank Branches.

g. Credit Card / Debit Card / Net Banking payment

h. Facility of making payment by credit card / debit card / net banking is not available for below mentioned categories:

• Central Government / State Government and
• Statutory / Autonomous Bodies

You can also check the status of the application by quoting acknowledgement number at https://tin.tin.nsdl.com/pantan/StatusTrack.html. See the image below

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Documents and Forms for application of DIN (Director Identification Number)

What is Director Identification Number?

DIN is a unique Director Identification number allotted to an existing or a proposed Director of the company allotted by the Central Government. DIN once allotted is valid for lifetime of a director until cancelled, surrendered or deactivated. It is an 8-digit unique identification number assigned to the director of the company.

Only a single DIN is sufficient if a person is director in two or more companies. And if he will resigned and join a new company than it will be work in the new company also.

Documents and Forms required for application of DIN

1. For SPICe Form:

A person name is proposed to become a first director of the new company than he shall be apply in the form SPICe. The documents is required to be Attach Proof of Identity and Address Proof along with the application form. DIN would be allocated to an applicant only after approval of the form.

2. Form DIR-3:

Every individual, intending to become a director in an already existing company shall make an application electronically in Form No. DIR-3, to the Central Government for the allotment of a Director Identification Number (DIN). eForm DIR-3 is required to be filed pursuant to Section 153 of the Companies Act, 2014 .

a. Attachments:

Photograph, Identity proof, Address Proof, Verification (Name, father’s name, present address, date of birth, text of declaration and physical signature of the applicant)

In case of foreign nationals, than passport is required for an identity proof. 

Photograph, identity proof and residence proof must be attested by a Chartered Accountant or a Company Secretary or a Cost Accountant, in whole time practice.

In case of foreign nationals, their documents can be attested by Consulate of the Indian Embassy and Foreign Public Notary.

After uploading DIR-3 and related documents, the applicant will pay the fee. Only electronic payment of the fees shall be allowed (I.e. Net banking / Credit Card). No challan payment will be accepted under revised procedure of DIN allotment.

3. Form DIR-6

For changing any details mentioned in the DIR-3 form/ SPICe with respect to Directors, then Form DIR-6 has to be submitted online. With the form, the attested supporting document is also required to be submitted.  If any change in the details mention in the form DIR-3 and SPICe than Form DIR-6 can be filed electronically with the MCA to intimate of any changes to particulars stated in DIN. In such cases, the details of PAN must first be changed before filing DIR-6, as the form validates the input from the PAN database.

Form DIR-6 must be certified by a practicing Chartered Accountant or Cost Accountant or Company Secretary. The professional must also provide their membership number and attest the supporting documents attached with DIR-6.

Surrender or Cancellation of DIN 

The Central Government acting through their regional director northern region or any other officer as may have been authorized in this regard can cancel or deactivate the DIN 

1. In case it is established that the DIN was obtained by the DIN holder in a wrongful manner. 

2. on the death of the DIN holder.

3. The person has been declared unsound mind by the court

4. If a duplicate DIN has been issued to the director

Surrender of DIN is possible only on satisfaction of below two conditions.

1. He has never appointed as a director in any company or designated partner in any LLP 

2. The said DIN has never been used for filling of any documents with any authority.

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MSME Registration Process‎, Documents and Benefits

A New announcement in Budget 2019

GST registered MSMEs can get 2% interest subvention from Government for incremental loans of Rs 1 crores under the MSME Credit Scheme

MSME stood for Micro, Small and Medium Enterprises. In a developing country like India, MSME industries are the backbone of the economy.

In India MSME play very important role in the development, employment and also in exports. As per the database provided by MSME sector contributes to 45% of India’s Total Industrial Employment, 50% of India’s Total Exports.

BENEFITS OF MSME REGISTRATION

·         Easy Bank Loan up to 1 Crore without collateral / mortgage

The Govt. of India and SIDBI has launched a Credit Guarantee Scheme (CGSME) to make available collateral-free credit to SMEs.

·         Preference in procuring Government tenders

The Government of India gives special preference in buying from Micro and Small businesses through Govt. tenders.

·         1% exemption on interest rate on Bank Over draft (OD)

Enterprises that have MSME Registration can avail benefit of 1% exemption on interest rate on over draft (OD).

·         Concession in Electricity bills

Enterprises that have MSME Registration Certificate can avail Concession on electricity bill by making application to electricity department.

·         Protection against the delay in payment from Buyers

Maximum period for payment for purchases from MSME shall not exceed 45 days, in          case of delay, the buyer is liable to pay interest to the SME supplier, at 3 times of the bank rate.

·         Tax Rebates

 MSME / SSI registered businesses enjoy multiple income taxes and capital gains tax subsidies from the government.

·         Special 50% discount on Govt. fees for Trademark & Patent

Enterprises that have MSME Certificate can avail 50% subsidy for patent & trademark registration.

·         Fast resolution of disputes

Enterprises undergoing a dispute with regard to payments may refer the dispute to the MSME Facilitation Council for conciliation & arbitration.

What are Micro, Small and Medium Enterprise?

MSME are classified into two categories:

i. Manufacturing enterprise; and

ii. Service enterprise.

A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

 DOCUMENTS REQUIRED FOR MSME REGISTRATION

1.Company PAN Card or Proprietor’s PAN card

2.MOA, AOA & Incorporation Certificate ( if applicable )

3.LLP Agreement/ Partnership deed

4.Company Address Proof

5.Adhaar Card

6.Banks Details(Ifsc & A/c Number Only)

7. Information About Your Business

What is the validity for MSME Certificate.

The Provisional Registration Certificate (PRC) will be valid for a fixed period of 5 years from the date of issue of PRC. 

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7 Changes in Income Tax Laws come into effect from September 1

Generally Income tax related changes announced in the Budget usually come into effect from April 1.But in the FY 2019-20 budgets was presented in July this year after the general elections, there are certain tax changes that will come into effect from September 1, 2019. 

·         TDS on additional payments made when purchasing immovable property

From September 1, 2019, while buying a property, you will have  to include the payment made for other services or amenities such as club membership fee, car parking fee, electricity and water facility fee and so on when computing the amount paid for the property for the purpose of deducting TDS. The TDS will continue to be deducted at the rate of one . 

·         TDS on cash withdrawals from bank account

Cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. 

A new section 194N has been inserted in the Income Tax Act which defines that TDS will be levied at the rate of two per cent on cash withdrawals made from the account. 

·         TDS on payments made by individuals and HUFs to contractors and professionals

From September 1, individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent. 

This would mean that individuals making payments over this limit for house renovation, wedding functions or for any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment. 

A new section 194N has been inserted in the Income Tax Act for this purpose. However, in order to provide ease of compliance, individuals and HUFs, deducting the tax will not be required to obtain TAN (tax deduction account number). The new law will be applicable to all the payments made by the individual whether for personal use or for business purposes (in case their accounts are not required to be audited.) 

·         TDS on non-exempt portion of life insurance

If life insurance maturity proceeds received by you are taxable in your hands, then TDS will be deducted at the rate of 5 per cent on the net income portion. The net income portion is defined as the total sum received less of total amount of insurance premium paid. 

Currently, proceeds received at the maturity of a life insurance policy are exempted from tax if the annual premium paid does not exceed 10 per cent (20 per cent in case of insurance policies sold prior to April 2012) of the sum assured. 

"If the maturity amount received by an individual are taxable, then TDS will be deducted only on the net income portion and not on the total amount paid. Remember TDS will be deducted at the rate of 5 per cent in case the taxable proceeds, i.e., net income portion exceeds Rs 1 lakh. Prior to this TDS was deducted at the rate of 1 per cent on the total amount paid." 

·         Banks and FIs can be asked to report even small transactions

Till now banks and other financial institutions are required to report specified financial transactions if the amount exceeded the threshold limit. In most of the reportable transactions, the limit has been Rs 50,000 or more. These transactions were to be reported to the income tax department through a Statement of Financial Transactions (SFT) required to be filed by all banks and FIs. 

However, the government has widened the scope of reporting requirement for such transactions by removing the minimum floor of Rs 50,000, above which financial transactions are required to be reported. This has been done via legislation introduced in the last budget. This means that from September 1, banks and FIs can be asked to report even small transactions to the tax department which in turn can use the data to check your ITR. 

Wadhwa adds, "Previously, the tax department could ask for a report of transactions of individuals equal to or more than Rs 50,000. However, this floor of Rs 50,000 has been removed in the budget of July 2019 enabling the income tax department to ask for information about small transactions as well. Thus, the CBDT can now require reporting of transaction even if the value of such transaction is nominal." 

·         If PAN is not linked with Aadhaar

As per rules existing prior to changes announced in July Budget 2019 PAN would have become invalid if not linked with Aadhaar by a specified deadline. This would have meant that in case of a person's PAN becoming invalid, it would be treated as if the person never had a PAN. 

However, to protect the validity of previous transactions done using the PAN, Budget 2019 changed the rules such that PAN will become now become inoperative but not invalid if not linked with Aadhaar by the specified deadline. 

·         Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions

Another important announcement in Budget 2019 was inter-changeability of PAN and Aadhaar. "However, Aadhaar can be quoted in lieu of PAN only for certain prescribed transactions. Though the new law comes into effect from September 1, the government is yet to notify the certain prescribed transactions.’’

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Big bank mergers: Government turns ten PSBs into four

NEW DELHI: India announced an extensive consolidation of state-owned banks that will see 10 of them being merged to form four bigger lenders to strengthen a sector struggling with a bad-loan cleanup and aimed at creating lenders of global scale that can support the economy’s surge to $5 trillion by 2024. The government also announced governance reforms to improve their health. 
“We want to create next-generation banks,” finance minister Nirmala Sitharaman told reporters on Friday. “You need big banks with enhanced capacity to increase credit… You need banks with strong national presence and global reach.” 

Bank unions, however, opposed the mega merger move saying it lacks any rationale. 

This was the latest in a series of announcements by the government since last

week as it seeks to stimulate demand and revive the economy. In a separate announcement, the government said growth had slumped to a six-year low in the quarter to June. 

The latest consolidation move will slash the number of state-owned lenders to 12 from 27 in 2017, Sitharaman said, highlighting the banking reforms undertaken by the Narenda Modi government that have also included significant tidying-up of balance sheets. 

“Today’s announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer,” said State Bank of India chairman Rajnish Kumar. 

Among the governance changes, the move to have a separate mechanism for sanctioning and monitoring of big loans will ring-fence the banks against potential frauds. Further, the decision to empower bank boards and operational flexibility in hiring from the market will prioritise robust risk-management practices in decision making. 

‘No Disruption for Customers’

Punjab National BankNSE -0.23 % will absorb Oriental Bank of Commerce and United Bank of India to form the nation's second-largest state-owned lender with combined business of Rs 17.94 lakh crore, overtaking Bank of Baroda with Rs 16.13 lakh crore. SBI leads state-owned banks with business of Rs 52.05 lakh crore. 

 

Canara Bank will absorb Syndicate Bank, giving it a combined business of Rs 15.2 lakh crore and ranking it at fourth, while Union Bank of India will amalgamate with Andhra BankNSE 7.65 % and Corporation Bank (Rs 14.59 lakh crore, fifth). Indian Bank will absorb Allahabad BankNSE 4.44 % (Rs 8.08 lakh crore). This will make balance sheets stronger, giving them greater capacity to lend, according to the government. 

Managing directors of these banks were informed about the merger decision earlier in the day by the department of financial services (DFS) even though discussions had been going on for some time, said a senior banking industry official. 

SBI took over its associate banks in 2017 and Bank of Baroda absorbed Vijaya Bank and Dena Bank this year. The top six will now have 82% of the lending business in public sector banking and 52% in commercial sector lending. Finance secretary Kumar said the consolidation will be smooth. 

Bank unions opposed the mega merger of 10 state-run banks into four saying the move is bereft of logic and lacks any rationale. "The proposals which the government has moved are unmindful since it has no logic or rationale. Neither, it is the case that a weak bank is merged with a strong one nor geographically compatible banks are being merged," All India Bank Employees Association said in a statement. 
 

Recapitalisation and Governance Reforms The consolidation exercise will be accompanied by a Rs 55,250 crore capital infusion in public sector lenders as also governance reforms. Punjab and Sind Bank will get Rs 7,050 crore; Central Bank of India will get Rs 3,300 crore; UCO BankNSE 7.09 % will get Rs 2,100 crore, PNB will get Rs 1,600 crore, and Bank of Baroda will get Rs 600 crore. Kumar said bank boards will apprise the government of capital requirements and numbers finalised. 

As part of the governance reforms, Sitharaman said non-official directors at state-run lenders will have to function like independent directors on company boards. Boards will be peer reviewed. The number of executive directors has been raised to four and boards have been given the mandate to reduce and rationalise board committees. Public sector banks will also be able to appoint a chief risk offer at market rates. 

The finance minister also gave a report card on the steps announced earlier by the government, with recoveries rising to Rs 1.21 lakh crore in FY19 from Rs 61,930 crore in FY17 and provision coverage ratio being at the highest in seven years. She said profitable state-run lenders had gone up to 14 as against two in FY18.

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